“Money is not the main thing?”: The authorities argued about the sources of financing the transformation of the economy

Any increase in the tax burden on businesses will undermine investment activity, said Minister of Economic Development Maxim Reshetnikov during the session “How the Russian Economy Will Develop” at SPIEF-2023. It was the stability of the tax policy that provided incentives for the growth of private investment during the pandemic and sanctions pressure, the minister added. This position was supported by presidential aide Maxim Oreshkin. According to him, raising taxes on business is counterproductive for the economy, it will not produce any effects.

At the same time, Finance Minister Anton Siluanov said that it is planned to fine-tune the taxation of natural and economic rent. “We are talking about super profits, it is like economic rent. We will continue to move in this direction,” he said. According to Siluanov, a decision has already been made on a more fair calculation of the mineral extraction tax on oil, because “the oil companies offered large discounts.” In addition, we agreed with business that it will help to make a contribution “to the general situation” in terms of taxing economic rent this year, the finance minister said. In particular, the government adopted a tax on excess income – the so-called windfall tax.

According to Reshetnikov, only private investment can “pull out” the economy. “Our economy is behaving quite adequately and is working on growth in demand, growth in supply. Yes, we discuss inflationary risks all the time, and they exist, but they are implemented much less actively than we thought last year.” Adaptation is going so fast because the authorities ensured macroeconomic stability and provided sufficient “monetary oxygen” to the economy – that is, there were funds for structural adaptation. This is one of the key points – without financial resources it will be difficult to engage in investments, structural changes, the Minister of Economic Development believes.

The head of the Bank of Russia, Elvira Nabiullina, in response to this, said that for the restructuring of the economy, it is not money that is needed, but the adaptation of enterprises. “Here I do not really agree with Maxim Gennadievich [Решетников]. At all times, it was believed that the main factor is cash injections. I believe that the main factor is the adaptation of many thousands of our enterprises, which turned out to be very flexible and agile,” Nabiullina said.

“We confuse the activity of the state in a crisis, which should be, with the fact that we want to constantly manage the economy,” the chairman of the Central Bank believes. This temptation to manage economic restructuring could lead to private initiative being stifled, she said. In addition, there are risks of “restoration of the planned economy.” “It seems that this is impossible – we have a market economy. But in fact, it is enough for the state to concentrate the right to make decisions – what industries and what projects need to be developed and where to direct financial resources instead of private initiative, ”Nabiullina emphasized.

The transformation of the economy does not mean making a breakthrough through budget spending and increasing public debt, Nabiullina pointed out. This position was supported by Siluanov. “I once again heard from a colleague that money is not the main thing,” the finance minister said, answering a question from the moderator of the session and head of the Duma Committee on Budget and Taxes Andrei Makarov about reasons for joy after Nabiullina’s speech.

According to Siluanov, increasing spending is “like throwing fuel on a fire.” The Ministry of Finance sees elements of the warming up of the economy, therefore, additional budgetary stimuli will lead to acceleration of inflation and an increase in rates, the minister said.

“We solve the problem – technological transformation. What’s in our heads? So, we need to give money from the budget,” Siluanov said. The state allocates funds from the budget for the creation of production facilities and the purchase of machine tools – enterprises start working, and then they buy products from it for budget money, the minister noted. “We pay twice,” Siluanov stressed.

According to Siluanov, now there are no serious problems with federal budget revenues, so the agency expects to fulfill the plan for oil and gas and non-oil and gas revenues.

The moderator asked if privatization could be a source of financing for the transformation of the economy. This idea was supported by Nabiullina and Oreshkin. “I believe that, of course, it is necessary to privatize, and we have something to privatize without prejudice to strategic interests. We have the opportunity to do this, and this is not only a question of budget revenues, but a question of developing private initiative,” the head of the Central Bank said.

“I’m closer to the position [главы ВТБ] Andrei Leonidovich Kostin, who spoke about privatization. But not in the form of large-scale privatization, but in the form that Elvira Sakhipzadovna spoke about: exit from assets inefficiently used by the state for the benefit of the state,” Oreshkin said.

Reshetnikov believes that the restart of privatization now should not be considered primarily as a source of replenishment of the budget. At the same time, according to him, this will give an incentive for the development of investments.

“In terms of accelerating growth and investment opportunities, yes. From the point of view of fiscal issues, well, it’s probably very difficult to overestimate something in the current situation,” Reshetnikov noted.